Oil prices have hit a record low falling below $60 per barrel. Although for gasoline consumers the drop in prices are accompanied with happy bank accounts, other production sectors and countries are starting to feel the effects.
From oil fields in places like Texas to those in Saudi Arabia and Russia, along with extraction plants and businesses, are being affected by the fall in prices. Countries like Venezuela and Russia, whose economies greatly depend on oil extraction and exportation are some of the hardest hit as they try to maintain production quotas in the face of a saturated market.
“Russia’s rouble went into free-fall in Tuesday trading, falling repeatedly to hit record lows, despite the central bank’s dramatic decision to raise interest rates from 10.5% to 17%,” according to BBC.
Why are oil prices down?
The simple answer is that there is a surplus in the supply of oil, but a decreased demand for oil in the global market. This problem has been perpetuated by the exploration and the energy independence revolution in the United States and Canada. The extraction of shale oil in the United States has boomed and created alternative energy sources that are messing with the natural flow of oil trade (Boston Globe).
The reign of OPEC may be coming to an end. Oil prices have taken their sharpest plunge in three years according to Bloomberg. Latin America, the region that accounts for the largest crude oil reserves outside of the Middle East, has begun to feel the shock waves of the recent petro crisis.
OPEC, the Organization for Petroleum Exporting Countries, was founded in 1960 with the first five member countries being: Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Today, Ecuador has been another country from Latin America that has become an OPEC member.
Since September, prices have dropped significantly while alternate energy sources have been explored, for example the increased interest in natural gas and pipeline systems. The petroleum cartel, OPEC, an organization of countries with some of the largest oil reserves in the world, is facing off against a new era of alternate energy. The petro dollar has become depreciated.
“In just a matter of months, the price of a barrel of oil has dropped from more than $100 to about $70, and gas is now cheaper than it has been in years,” according to Fox News.
OPEC and the petro industry marked an increase in supply in the face of a falling global demand for oil; this combination creating the devaluation of the petro dollar, says Telegraph.
OPEC met this past week, and besides the fall of the crude oil prices, OPEC members have decided to not minimize current production quotas. The cartel of oil-producing nations, in the past has been able to fix prices based on their ability to increase or decrease their supply of crude oil. OPEC’s decision will inevitably lead the prices to continue to fall as there becomes a surplus of crude oil in the market.
The decision to maintain production, at about 30 million barrels a day, is seen by many as OPEC’s confidence in the resurgence of demand for oil despite the United States great success with increased fracking and shale gas extraction. The decision made by OPEC is seen as a response to hype about new energy take overs.
Although the organization decided to face off against the increasing value of shale gas and other competing energy sources, sticking out the economic downturn at the moment, some OPEC nations may not be able to handle the short-term sacrifice. Countries like Venezuela and Nigeria who have economies almost completely dependent on the production and exportation of crude oil will be much more greatly affected with falling oil revenue prices below $100.
Venezuela’s President Nicolas Maduro, after the OPEC meeting, announced the country will cut public spending, due to the fall of petroleum demand. Surprisingly, the first thing to be reviewed and cut will be the wages and salaries of leadership officials, “starting with the president of the republic.”
Cuts will be made to all the ministries and state owned enterprises. Maduro doesn’t see the fall in gas prices and its effect on the country’s economy as an “evil.” In his opinion, according to El Comercio, he sees it as an opportunity to cut unnecessary spending and reorient the country.
Despite recent problems of questionable dictatorship type actions from the Venezuelan government, Maduro assured that even though there will be cuts,
“’ni un bolívar se va a tocar de las misiones’ o programas sociales y señaló que, por el contrario, se ampliarán las inversiones en materia social.”
In this address to the country saying that social programs will not be touched or cut, but on the contrary, will receive increased investments and attention.
A couple months ago Argentine President Cristina Fernandez de Kirchner publicly endorsed Russia Today as an accountable and reliable source of news recommended to the Argentine public.
The close bonds between Kirchner and Putin forwarded the adoption of Russia Today in the country; Putin’s views being that the news site is one that is not biased like those news sources of “monopolistic countries,” aka the West, mainly the United States.
As the leftist movement in Latin America continues, Venezuelan President Nicolas Maduro this past week addressed the country that Russia Today is an excellent alternative news source. Venezuela is just another one of the Latin American countries, among Argentina and Nicaragua as examples, who have shifted away from U.S. relations turning to Russian partnership.
Venezuela, the country with the largest oil reserves in the world, 9th largest producer of crude oil and an OPEC member, will now be importing oil for the first time.
PDVSA (Petroleos de Venezuela S.A.) is the Venezuelan state-owned oil and natural gas company importing the oil. According the International Business Times (IBT), PVSDA was expected to receive its first ever shipment of light crude oil from Algeria. With oil being the Venezuelan government’s largest source of income, the importation of oil is rather peculiar.
“Oil production has declined over the years, exacerbating the country’s problems with a limited foreign currency supply, and critics say mismanagement of PDVSA is largely to blame. Meanwhile, global oil prices have slipped by more than 25 percent since June,” reported IBT.
Venezuela produces different types of oils, but its main product is known as an extra heavy crude oil. In order to process this oil, a diluent is needed, this diluent normally being light crude oil. Venezuela had been buying alternate diluents, as their light and medium crude oil stocks fell. The most common alternate diluent they used is called naphtha, a distillation liquid comprised of hydrocarbons, has become expensive in recent years. PVSDA had begun to think about the importation of light crude oil in order to reduce the expenditures used on naphtha, necessary for the processing of their extra heavy crude oil.
“PDVSA in August put on hold its exports of diluted crude oil (DCO) made of heavy crude and naphtha to review its cost structure and avoid losses amidst an oil market worried because of falling crude prices,” according to Reuters.
Despite earlier this year commenting that importing oil would be a “last resort,” energy minister, Rafael Ramirez and Venezuela turned to Algeria, fellow OPEC member. The country put in a 2 million barrel order shipment that was expected to arrive at the end of October.
Imports from Chinese Oil Company Out Of Russian Urals
Algeria was not the only country that Venezuela turned to, Petrochina, a Chinese state owned oil and gas company, has become of a part of the importation mix as well. However, the gas in question that is being exported is being extracted and produced in Russia. The Russian cargoes will be the second imports into Venezuela; PVDSA bought two cargoes of Russian Urals light crude oil from a unit of Petrochina. The exported are being attributed to Russia however being extracted by a Chinese corporation, reported by Reuters.
According to the Venezuelan administration, PDVSA produces close to 3 million barrels a day, making it one of the world’s largest crude exporters. With such a dependent economy on oil extraction, production, and exportation the largest crude oil reserves country in the world will have to deal with production problems in the face of slipping global oil prices and civil unrest.
In the wake of protests last spring in Venezuela, the country grapples with growing international exportation demands, but also robust social and civil frustration. Venezuela faces a peculiar situation.
Is the country ready to become a renowned global competitor, or will it’s social imbalances and political strife lead it to the inevitable fall, that is expected of an unstable developing country? Despite the possible responses, Venezuelan President Nicolas Maduro is gearing up tackling both problems at the same time: promoting international arms trade by importing weapons while helping to control it’s unsettled citizens with force if necessary.
As Maduro acts on his own, following after Hugo Chavez, he has made recent deals to increase arms trade among Venezuela, Russia, and China. Maduro, who has spoken with Russian President Vladimir Putin and Chinese President Xi Jingping hopes to enlarge the country’s weapon supply with new cutting-edge equipment.
According to General Igor Korotchenko, at the Centre for Analysis of World Arms Trade, by 2015 Venezuela is expected to become the second largest importer of Russian arms in the world, total sales reaching up to $3.2 billion.
According to Ria Novosti, one of the largest Russian news agencies,
Venezuela received Russian air defense systems (Antey-2500, Pechora-2M, Buk and Igla) as well as T-72M tanks, Grad and Smerch multiple rocket launcher systems, armored vehicles and artillery.”
It is strange because the phrase “Latin America” has different connotations for different people. For some when they hear the words “Latin America,” they think of only Central America, South America seeming to be a different distinct entity that does not correlate within their brains. Not to mention the Caribbean as being a whole other topic.
Although this should have been addressed at the inception of this blog, it went unrealized the vagueness and miss understanding of what the words “Latin America” mean. There are four main sub-regions within Latin America: North America, Central America, the Caribbean, and South America.
Terminology of Latin America, region of Romance Languages:
Latin America: Hispanic America + Brasil + Haiti (founded as a French Colony)
Hispanic America: the nineteen countries that speak Spanish within Latin America, originally colonized by fleets from Spain.
North America: Mexico
Central America: Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica, Panama
Carribean: Cuba, Dominican Republic + Puerto Rico
South America: Venezuela, Colombia, Ecuador, Peru, Bolivia (Andean Countries), Paraguay, Argentina, Urugauy, and Chile (Countries in the Southern Cone)
Ibero-America: Hispanic America + Brasil
Then there is Ibero-America, which is a term referencing to the region that originated from the Iberian Peninsula. Ibero-America’s significance stems from the Portuguese and Spanish who dominated and took over that region, with the odd exception of Suriname in the Northern part of the continent, which is predominantly a Dutch speaking country.
In the Western Hemisphere the Spanish, Portuguese and French colonies originally established are what now comprise Latin America.The region is about twice the size of the total area of the United States, about 21 million kilometers, extending almost 6,000 miles north to south. About 80 percent of the Latin America region is situated in the tropical or subtropical zone.
Within Mexico, there is the Mexican Plateau in the Sierra Madre Mountain range. The topography in Central America is complicated, comprised of plains, valleys, and mountains.
As known, the Caribbean has an amazing climate and is based off of Las Antillas, the mountain range which created the islands. About 35 percent of the region is mountainous. The beaches are also magnificent and bring in the most tourism to the region.
In South America, on the west coast the great Andes Mountains extend from Venezuela all the way to the bottom of the continent creating the border between Chile and Argentina. Not to mention the area of Patagonia, a glacier range shared between Argentina and Chile that is a part of the Andes Mountains. There is the Amazon Region in the north central area of South America and Pampas, great plains within Argentina.
There are also great arid regions on the other western side of the Andes as most of the pacific coast is more arid. There is the Atacama Desert which is the driest non-polar desert in the world which is situated in Chile and parts of southern Peru, Bolivia, and the North Eastern corner of Argentina.
As far as ethnic composition, there is not a specific race within the region, only a “racial rainbow.” The main races are: indigenous, white, and black. The more Caucasian races dominate in countries like, Argentina, Uruguay, Costa Rica, and more than 50 percent of the population in Brasil.
In countries like Bolivia and Guatemala, the indigenous population accounts for more than 50 percent of the population. Peru and Ecuador have around 40 percent of their population being indigenous.
The population of people of African descent is the largest in only one region, and that region is Haiti. However the mulato population is a big part of The Dominican Republic, Puerto Rico, and Cuba as well.
In general, racial mixing is very common, since the arrival of the conquistadors and when mass amounts of immigration to the region began to occur through history.
For example, many Germans migrated to Argentina and Brasil in the 1900’s, Chinese to Cuba and Peru, Japanese all over Brasil and people of Syrian and Lebanese descent to Chile, Colombia, and the Caribbean.
Latin America is greatly held together as one entity by its language origins and cultures. Most Latin American countries became independent one after the other within the 1800’s. Since then they have all faced similar development issues in striving to fix inequality and poverty within the countries, while pursuing economic advancement. Often the people and the physical environment have suffered from the movement to free trade and the mass production/harvest of goods from the region.
However, most regions in Latin America, especially in the sub-region of South America, have hit a pinnacle point in which they are no longer subject to the market and other countries. As seen, Latin America is extremely diverse physically and demographically; these factors have begun to work in a way that is creating a new strength and social identity for most of the countries.
Latin America has all the resources; it just needs the right leadership and partnerships to stimulate a system of sustainable development.
Venezuela, a country scarred by “U.S.-backed coups,” as described by the BRICS Post has been one of the most active countries in Latin America to start steering away from U.S. relations and seeking partnerships with other countries.
This past July, Chinese President Xi Jingping, like Russian President Vladimir Putin, toured around Latin America affirming and creating mutual trade relations within the region. XI and Venezuelan Socialist President Nicolas Maduro met in Caracas to discuss bilateral funding and their trade agreements.
Just last year Xi and Maduro signed 24 agreements during Maduro’s visit to China, where in 2013, bilateral trade between the two had reached $19.2 billion according to a BRICS Post analysis. Maduro has attended BRICS meetings and supports the development of further BRICS and UNSAN (Union for South American Nations) relations and negotiations. Maduro hopes the two can grow to be a “working alliance.”
Venezuela has one of the most prominent oil industries in Latin America and in recent times has been widely turned to as an alternate oil source, China being one of these alternate partners. Venezuela is one of China’s main oil exporters. Venezuelan state oil company PDVSA has about a 40% investment in an oil processing plant in the Guangdong province of China. China has also been funding other projects as well for Venezuela, like funding the launch of two satellites for the country and working on the launch of a third one.
This blog is a platform for the investigation of the economic situations and governmental transitions within Latin America and how these factors have increased activities with unusual trading partners.